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January 18, 2008

Consumers Shopping Habits Morphed By Cell Phones And Virtual Worlds

by Sam Savage

Virtual worlds, mobile coupons and bar-code readers on cell phones are the next technology wave that U.S. chain stores must ride if they hope to stay competitive in the fast-changing world of global retail, Reuters reports.

Gathered in New York this week for the National Retail Federation's (NRF) annual convention, retailers were urged to go high-tech to stand out in the crowd and improve sales, especially amid a flagging U.S. economy.

"The cell phone is shifting the way consumers shop, and U.S. retailers need to get ready," Pat Conroy, vice chairman at Deloitte & Touche USA told retailers in a keynote speech at the convention.

U.S. retailers need to adopt technological advances that have already changed shopper behavior across the globe, Conroy added.

He noted that customers at McDonald's Corp restaurants in South Korea can purchase food on cell phones, which then ring when their orders are ready.

According to Reuters, in China, mobile commerce is expected to reach $1 trillion in 2010, while in Japan, cell phones have bar-code scanners so consumers can check the freshness of food with their phones.

"Asia's leading the way," he continued, but changes are also taking place in the U.S. market.

Wendy Liebmann, chief executive of consulting firm WSL Strategic Retail, gave the example of prom dress shoppers who take pictures of themselves with their cell phone cameras, then post the photos online so friends can help pick which outfit to buy.

The Internet has also become more interactive, with consumers spending more time and money in virtual worlds like Second Life and Webkinz.

"These technologies are going to change the way you interact with your customer, they're going to change the way people shop, they're going to change the way you manage your brands," Giff Constable general manager at Electric Sheep Co, which designs content for virtual worlds, like Second Life told retailers.

Constable added that corporations are putting big bucks into virtual worlds -- three-dimensional parallel universes on the Internet -- where users typically create and dress up characters, buy goods and interact with others.

Last year, Walt Disney Co purchased kids' virtual world Club Penguin for $350 million in cash plus up to $350 million more, depending on the Web site's earnings in 2008 and 2009.

While some retailers have started building stores in these virtual worlds, others should consider doing the same, to extend their brands and eventually, boost sales, Constable added.

But a pervasive undercurrent at the convention was worry over the state of the U.S. economy, and what that will mean for profits, Reuters reports. The NRF forecasts U.S. retail sales will rise 3.5 percent this year, the lowest rate of growth since 2002. So while new technologies are appealing, there is little room in the budget for them.

At a panel discussion, the chief information officers of Michaels Stores and Circuit City said most of their technology budgets have been eaten up by maintaining day-to-day operations -- like paying the power bills.

Reuters cites a survey by International Business Machines Corp and the NRF Foundation. According to the survey, Retailers said their top technology initiatives for 2008 were to replace or upgrade their merchandising and inventory management systems. No. 2 was replacing cash registers.

Though keeping costs down is paramount this year, retailers such as Bon-Ton Stores Inc recognize the importance of upgrades, and are still spending despite the rocky economy.

"Return on investment on some of the technology ... out there, that we're thinking that we need is absolutely crucial for us to take the next step," Edward Carroll, a Bon-Ton vice president of sales promotion and marketing told Reuters.

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Photo Caption: Second Life avatars shopping in an undated image. Virtual worlds, mobile coupons and bar-code readers on cell phones are the next technology wave that U.S. chain stores must ride if they hope to stay competitive in the fast-changing world of global retail. (Linden Labs)